2025 (9) TMI 1125 - AT - Income Tax

Reassessment under s.147 and treating sale proceeds as unexplained cash credit u/s 68 held unjustified; reassessment quashed

ITAT JAIPUR - AT held that reopening under s.147 and treating sale proceeds as unexplained cash credit u/s 68 was unjustified. The assessee produced ... Reopening of assessment u/s 147 - Unexplained cash credit u/s 68 - reason to believe or suspect - HELD THAT:- As in view of the evidences so furnished by the assessee company which has not been rebutted by the AO and also in absence of any contrary evidence brought on record by the AO, we see no reason to disbelieve the sale so made by the assessee company to the said party. Since the sale has been made to the said party and amount has been received through banking channels from the said party by way of recovery of sale proceeds, the amount cannot be said to the receipt ‘without any business rationale’ as observed by the then ld. AO in show cause notice u/s 148A(b). As held that non filing of the income tax return by a person with whom any assessee has entered into commercial transaction of purchase and sale will be a ‘good reason to suspect’ that something is not correct but only because the other party to whom sale has been made by the assessee company, has not filed the return of income, then treating the entire sale proceeds received from the said party as the unaccounted income of the assessee company is not justified, when particularly the sales have been held to be genuine. Without prejudice to above, non-filing of return by the party having transaction with the assessee company cannot be considered to be the reason for ‘formation of belief’ in the case of assessee company that income of the assessee company has escaped assessment. AR has also submitted that in the original assessment u/s 143(3), the details of sales to ten parties were asked for which were submitted by the assessee and these included details of sale made to the aforesaid party namely M/s Mamta Trading Company. The then ld. AO has perused and scrutinized the details alongwith other details submitted before him and after being satisfied had passed order u/s 143(3). Now reassessment proceedings so taken up on the same issue of sale made to the aforesaid party would tantamount to ‘change of opinion’. We are of the firm opinion that reopening proceedings and the consequent re-assessment order suffers from the infirmities as mentioned above and is thus bad in law and therefore it is quashed. Therefore ground No. 1 raised by the assessee stands allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the addition made under section 68 (unexplained cash credit) of the Act of Rs. 8,34,73,192/- was justified where the assessee claimed the receipts were sale proceeds supported by books of account, invoices, stock records, transport documents and statutory sales-tax forms? 2. Whether the appellate authority erred in deleting the section 68 addition without awaiting/remanding the file-report from the Assessing Officer (AO) / JAO? 3. Whether the AO was justified in treating receipts as unexplained merely because the counterparty had not filed its income-tax return and had not complied with a short notice under section 133(6)? 4. Whether reopening of assessment under section 147/148 (including issuance of notice under section 148A(b)/(d) in the new regime) was valid and within limitation, or amounted to prohibited 'change of opinion' or was based on 'borrowed satisfaction'? 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legitimacy of section 68 addition where receipts are asserted sale proceeds Legal framework: Section 68 permits addition for unexplained cash credits; where a receipt is a commercial sale, it is ordinarily part of turnover and taxed under profits and gains unless shown to be bogus. AO must rebut the evidentiary foundation for a claimed sale before invoking section 68. Precedent treatment: Tribunal relied on multiple judicial pronouncements holding that sales admitted and substantiated by invoices, stock depletion/records and inclusion in turnover cannot be converted into unexplained cash credits under section 68 unless reliably shown to be bogus. Authorities emphasizing that mere suspicion or third-party non-compliance is insufficient were followed. Interpretation and reasoning: The Tribunal examined primary materials: audited financial statements, sales and party ledgers, bank statements, day-to-day stock register, transport/e-way documentation, RG-1 excise records, and original C-forms accepted by state commercial-tax authorities. AO did not controvert these documents nor produce contrary evidence. The Tribunal found that (a) the receipts were credited through banking channels; (b) corresponding outward stock entries and transport documentation existed; (c) the receipts were included in turnover and profit & loss account (thereby already assessed in original scrutiny); and (d) revenue failed to rebut the evidentiary chain demonstrating genuineness of sales. Ratio vs. Obiter: Ratio - where sale transactions are established on records that are not rebutted by AO, the corresponding receipts cannot be treated as unexplained cash credit under section 68. Obiter - references to analogous decisions on demonetisation-era deposits and other benches' findings, used to buttress the core ratio but not strictly necessary to decide the present facts. Conclusion: The addition under section 68 was not justified; the Tribunal upheld the appellate authority's deletion of the addition. Issue 2 - Whether appellate disposal without remand report was improper Legal framework: Appellate authority may call for remand report from AO; however, principles of natural justice and case management require that remand be meaningful - if AO fails to furnish remand report despite repeated requests, appellate authority may decide the appeal on the record. Precedent treatment: The Tribunal treated the appellate authority's practice of repeatedly seeking remand report and issuing reminders as adequate procedural diligence. No authority requiring indefinite waiting for AO's remand report was treated as binding. Interpretation and reasoning: The appellate order shows remand report was sought and six reminders issued over months without any submission by AO. Assessee did not file new evidence under rule 46A; replies to AO's remand notices were on record. Given the absence of remand report after substantial opportunity, the appellate authority's decision to adjudicate the appeal on existing record was reasonable and not a procedural lapse. Ratio vs. Obiter: Ratio - appellate authority may dispose appeals without further remand where the AO fails to supply remand report after adequate opportunity; doing so does not vitiate the appellate decision. Obiter - specific timeline or number of reminders is illustrative, not prescriptive. Conclusion: Deletion of the addition without a remand report was not improper on the facts; the ground challenging disposal without remand is rejected. Issue 3 - Effect of counterparty's non-filing or non-response to section 133(6) notice Legal framework: AO may issue notices under section 133(6) to third parties; non-response by a third party is a factor but cannot substitute for independent verification or rebuttal of the assessee's records. The burden to prove that sales were bogus remains on the revenue. Precedent treatment: Courts and Tribunals cited hold that mere non-filing by a counterparty or non-compliance with short compliance windows does not automatically render the assessee's transaction unexplained; the assessee cannot be penalised for the third party's failures where prima facie documentary evidence supports the transaction. Interpretation and reasoning: The Tribunal noted that the section 133(6) notice was issued at the fag-end of reassessment with a three-day compliance window; the assessee had furnished extensive contemporaneous documents and the AO did not conduct or adduce countervailing evidence through competent enquiries. The third party's non-filing was, at most, a ground for suspicion against that party but not a sufficient basis to form a belief that the assessee's income had escaped assessment. Ratio vs. Obiter: Ratio - non-compliance by the counterparty is not, without more, a basis to treat a documented sale as bogus in the hands of the assessee. Obiter - remarks on appropriate length of compliance windows and administrative practice. Conclusion: AO's reliance on counterparty's non-filing/non-response was insufficient to sustain the addition; appellate deletion stands. Issue 4 - Validity of reopening (section 147/148/148A): limitation, change of opinion and borrowed satisfaction Legal framework: Under reassessment provisions, reopening requires a recorded reason to believe that income has escaped assessment; reopening cannot be a mere change of opinion and must be supported by tangible fresh material or a proper exercise of mind. The new regime requires compliance with section 148A(b)/(d) procedures and supply of relevant material; limitation aspects are governed with reference to statutory reliefs/extensions enacted for pandemic period. Precedent treatment: Tribunal applied the Supreme Court guidance that show-cause notice under the new regime must supply relevant material; it followed jurisprudence disallowing reopening when it is effectively a review of facts already considered in original scrutiny and when the basis is borrowed satisfaction without independent application of mind. Interpretation and reasoning: (a) The Tribunal found the show-cause alleged non-inclusion of receipts in assessee's ITR to be factually incorrect because the receipts were included in turnover and assessed earlier; (b) the principal basis for reopening - information that a counterparty was a non-filer - was not, by itself, a 'reason to believe' that the assessee's income had escaped assessment; (c) the AO acted primarily on information from an investigation wing (borrowed satisfaction) without adducing fresh tangible material or independently verifying the incriminating aspects; and (d) the reassessment was not barred by limitation in view of applicable statutory extensions, but it was invalid insofar as it sprang from impermissible change of opinion and borrowed satisfaction and because key factual premise presented in show-cause was contrary to records. Ratio vs. Obiter: Ratio - reopening is invalid where it rests on (i) incorrect factual premise already considered in original assessment, or (ii) borrowed satisfaction from investigation material without independent corroboration and without fresh tangible material amounting to reason to believe. Obiter - discussion of particular pandemic-related limitation jurisprudence as applied to dates of notices. Conclusion: Reopening under section 147/148 was quashed to the extent it sought to reassess the documented sale receipts; the assessee's legal ground attacking reopening as change of opinion/borrowed satisfaction was allowed, though the Tribunal rejected limitation arguments premised on statutory relief jurisprudence as inapplicable on the facts. Overall dispositive conclusion The Tribunal dismissed the revenue's appeal against the appellate deletion of the section 68 addition, upheld the appellate authority's procedural conduct in disposing without a remand report, and allowed the assessee's legal ground that reassessment on the present facts amounted to unlawful reconsideration/change of opinion and was based on borrowed satisfaction; the addition of Rs. 8,34,73,192/- was accordingly deleted.